This Was A 'Profound Victory' For Herbalife

Late Thursday, Herbalife Ltd. HLF reached a deal with the FTC. Pivotal Research Group’s Timothy S. Ramey maintained a Buy rating on Herbalife, with a price target of $90, commenting that the deal represents a “profound victory” for the company.

Deal Is Good News

According to the deal, Herbalife has agreed to pay a $200 million fine to the FTC and $3 million to the Illinois Attorney General. “The company will adopt a two-tier membership structure – a structure HLF floated in the Spring of 2013 as a possibility,” analyst Timothy Ramey wrote.

The company would need to show that 80 percent of its product sales are to legitimate end users. Herbalife uses an Oracle enterprise system, which allows tremendous visibility. The FTC changes are applicable only in the US, which accounts for 20 percent of Herbalife sales, Ramey pointed out.

“This deal is consistent with our long-held view that while the company has had certain historic weaknesses in its compliance and oversight, it is a legal and ethical business model with the best-in-industry compliance function today. This is a total victory for Herbalife shareholders and a total defeat for the short camp,” the analyst commented.

The FTC deal effectively gives an “all-clear” for Herbalife as well as USANA Health Sciences, Inc. USNA [Rated: Buy, PT: $160] and Nu Skin Enterprises, Inc. NUS [Rated: Buy, PT: $60]. Ramey expects the stock to “re-price rather rapidly to the $80-$100 level.”

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